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We are an expat couple (< 30 years old) currently living in Germany. We are wondering about the long term benefits of investing in real estate when we do not have a plan to have children of our own or adopt and we do not have any nieces/nephews and hence no heir for our savings/property. We work in unionised electro industry (IG Metall) and hence our pay is guaranteed to increase around 3 to 4.5 percent every year. House loans being less than 2 percent currently, it seems like a good idea to invest in a place of our own. We already have both a Riesterkonto and a Betriebliche Altersvorsorge (both are private pension plans with tax benefits) in addition to the mandatory govt. pension. We do not have any interest to invest in stocks or capital gains. And we haven't found any other safe deposit scheme which provides sufficient interest for our extra savings. Hence we are looking at real estate as an option.

Pro:

  1. Place of our own. And probably we make profit if we sell at the right time in our retirement.
  2. Possible extra income if we rent the unused parts of the house.

Cons:

  1. Less flexibility to move jobs or to migrate to a different country. We are still considering Switzerland as a possible option after 10 years. But we could very well commute as we are based in south Baden region.
  2. We do not have any experience with maintenance works. We have never done anything on our own including trivial stuff such as painting a wall or replacing a car wiper till we reached Germany. Owning a home seems like more responsibility than simply renting one. Also a higher maintenance costs compared to a rented home.
  3. We do not have any heir and hence all this effort may seem wasteful in case we are unable to make a profit when we sell the house (or worse if we have to sell for a loss) when moving to a retirement home.

Please provide your opinions if this analysis makes sense to you or you could suggest an alternative investment plans better suited to our scenario.

Edit: I added the part about heir as I always believed your first home to be not just for you, but something you leave for your children to support them financially. Without a heir, I was just wondering if my investments are better off in something else like stocks instead (yes, am reconsidering this option now). I would rather have 100000 in cash than a property worth 120k, but maybe not if its 80k vs 120k property.

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    I think that you have 3 issues. (1) Do you want to own a home? (2) Is owning a home a good investment? (3) You have no heirs (unrelated to 1 & 2). Separate the issues and it might become clearer. – Bob Baerker Apr 29 at 15:49
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    Agree with @BobBaerker, a good investment is a good investment whether you have heirs or not. Your investment timeline might be a bit longer if you're planning for your descendants to use the money (you can be more risk-tolerant if you don't need the money anytime soon), but since you're in your 20s, it shouldn't make much of a difference at this point - you should already be investing for decades from now. – Nuclear Wang Apr 29 at 18:04
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    What makes having heirs relevant to real estate, vs other investments? Surely, if you put money into a savings account and then die, that's not much different than buying stocks and then passing away, or buying a home and then passing away. Or am I missing something here? – dwizum Apr 29 at 18:16
  • @BobBaerker (1). only if answer to 2 is a yes. otherwise no. – Max Payne Apr 30 at 7:25
  • @dwizum You can sell a few percent of your stocks each year, gradually drawing it down as needed. It’s a lot harder to gradually sell your property, unless you do something like a reverse mortgage. – Lawrence May 1 at 4:54
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I think Bob Baerker did a good summary of your questions. So, along those lines:

1. Do you want to own a home?

Only you can answer that question. It is definitely more things to take care of, and more trouble moving to a different city. That being said, if you stay in your location for decades, you usually end up paying less compared to renting. There might also be an intangible sense of security and attachment to the community that comes from owning.

Based on the details you provided, I would not think it's the right choice in your situation, but again, this is a very personal choice.

2. Is owning a home a good investment?

Based on the data that I'm familiar with, which is generally based in the United States, owning a home is a mediocre investment. It generally keeps up with inflation, and it "forces" some people that would otherwise not save into saving. However, it's very undiversified. Your returns after inflation after 20 years could be negative if you bought in a city that is losing population, or it could be worth 4 times as much if you bought in a city that's revitalizing and becoming a regional hub. On average, the returns are just a little better than holding cash on a bank account.

Alternative investments include interest-paying accounts and stocks, which have the advantage of portability and low maintenance. You said you weren't interested in stocks, but they are one of the best long-term investment vehicles around, especially when you use diversified low-cost funds. I'd only completely rule them out if you cannot trust yourself to avoid investment errors like selling everything in a down market.

3. You have no heirs.

Unless you're referring to a specific quirk in German taxes, this doesn't seem relevant to your decision. A good or bad investment will still be good, or bad, whether you have heirs or not. Whether you have heirs or not, you can still sell a home (or other investments) when you're older. You can either pass on whatever property you have to your heirs, or give it out to charity if you so choose.

  • Is there such a thing as interest paying accounts in Germany. I believe it is a US thing. Highest interest I could find was 1 percent. – Max Payne Apr 30 at 7:24
  • @MaxPayne US accounts from smaller providers offer even up to 3% currently so yes. For the situation in Germany, even 1% is more than I could find when I searched for rates recently. – Leon Apr 30 at 10:34
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Your Con #2 is a big consideration. If you can't do, or intensely dislike doing, even trivial maintenance jobs yourselves, repair and maintenance will be a big expense, if plumbers, electricians, painters, carpenters, and handymen cost as much in Germany as they do in my part of the US (suburbs of Washington DC). Don't forget yard work; even if you have a very small yard, it is work.

Therefore, I suggest that you learn how to do maintenance work while you are renting or leasing. Find out if you can learn how to do that work well and decide if you can face doing all that stuff for the foreseeable future, and factor that into your decision. If you decide to have tenants in your house, you really need to do routine and even not-so-routine repair and maintenance jobs yourselves, unless you luck into the ideal tenant.

(Disclosure: We have owned our house for decades, and view renting with horror.)

  • Just don't do the maintenance on your rental unit ... – Azor Ahai May 1 at 0:13
  • @Azor Ahai To not do maintenance on the rental unit, or hire it done, is not practical. Sooner or later you will have an unrentable unit. – ab2 May 1 at 0:35
  • Oh I see, I thought you meant "while you are renting [the place you're living in]" not "while you are renting [out your property]" – Azor Ahai May 1 at 16:13
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Everyone has heirs..

Especially in the UK. it might be people you have never even heard of... =P

The BBC had a pretty entertaining show about it.

https://en.wikipedia.org/wiki/Heir_Hunters

And buying vs. renting shouldn't be a function of having things to leave behind anyway.

What if you live to 100?

Do you plan to pay someone else's mortgage for the next 70+ years?

  • Links break all the time. Can you edit with a few sentence summary of what Wikipedia says about this delightful show? – JoeTaxpayer Apr 30 at 20:44
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A home is primarily a place for you to live. Whether or not it is a good investment is not so important.

My main reason for buying, rather than renting, is to save money when I retire. When I retire, my income will go down. But also, by the time I retire, I will have paid off the mortgage on the house. At that point, I need pay no more mortgage or rent for the rest of my life.

If you live in a place where renting is significantly cheaper than paying a mortgage on a similar property, then an alternative strategy is to rent, and invest the money you save by doing so.

An added advantage of owning your own home is that you can extend, modify or update it as you see fit, without having to ask the permission of the landlord.

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